2018 Changing Definitions and Rate Increases for Large Packages:
- UPS raised its large package surcharge to $80 for 2018. This rate increases to $90 on July 8
- FedEx reduced the dimensions of packages subject to additional handling surcharges by 20%, from 60 inches on the longest side to 48 inches
- FedEx customers will now pay an oversize package surcharge for parcels longer than 96 inches or 130 inches in length plus girth
- Both carriers dropped dimensional divisors to 139 for all packages in 2018
Think about the last dozen products you bought online: you might have bought books, socks, cleaning products or office supplies. But you may have also purchased mattresses, appliances or home-assembly furniture.
Products like furniture and appliances come in huge, heavy packages. A decade ago, these would have required professional parcel delivery service. Customers are buying more bulky items online, and the people moving them are FedEx and UPS drivers.
As the expansion of e-commerce increases the number of large, bulky and heavy packages companies ship, carriers have zeroed in on those parcels for the largest rate increases.
“Additional handling” or “oversize package” surcharges are commonplace. Pricing by dimensional weight drives up the shipping costs of large but lightweight packages.
Like all fees, oversize package and additional handling surcharges keep rising much faster than the standard 4.9% yearly rate increase.
But carriers also keep changing their dimensions of “oversize” or reducing the dimensional divisor that determines dimensional weight. That means shippers are paying more per package for more packages each year.
Why Do Oversize Package Rates Keep Rising?
Parcel carriers have long sought to discourage large-parcel shipments. Bulky, heavy packages bog down their networks by slowing down workers, taking up delivery vehicle space and even increasing transportation costs as trucks use more fuel when their loads are heavier.
But they don’t seem to be succeeding. As more and more companies promote convenient doorstep and same-day delivery, customers keep placing e-commerce orders for big items.
From the carrier’s perspective, it only makes sense to pass these shipping costs on to shippers. By driving up prices for shipments that require extra lifting, truck space or fuel, they can at least earn some additional money from the work and resources required to move these bulky and heavy parcels.
What Changes Have FedEx and UPS Made So Far?
Over the last few years, FedEx and UPS have started pricing more parcels using dimensional weight. Dimensional weight is a package’s dimensions divided by some carrier-determined “dimensional divisor.”
FedEx and UPS charge whichever is higher: actual weight or dimensional weight. The smaller the dimensional divisor gets, the larger dimensional weight gets, and the more likely packages are to be priced according to dimensional rather than actual weight.
A few years ago, the industry-standard dimensional divisor was 194. Today, it’s 139 across the board for both UPS and FedEx.
Next, carriers have been raising rates for large and oversize packages. In its 2018 rate announcement, UPS raised its large package surcharge to $80 and then beginning July 8, to $90. An additional handling surcharge on packages weighing more than 70 pounds rose to $19 per package.
And rates aren’t just rising. Carriers have also been changing the rules about what counts as “oversized” or “large.”
This year, FedEx reduced the dimensions of packages that require additional handling surcharges by 20 percent, from 60 inches on the longest side to 48 inches. FedEx also reduced the dimensions of oversized packages by about 25 percent from 119 inches in length or 165 inches in length plus girth in 2017 to 96 inches in length or 130 inches in length plus girth in 2018.
Shippers can try to mitigate these changes by packing goods more efficiently. But many objects simply can’t be shrunk. So now to ship those parcels, businesses will have to pay handsomely.
What Do These Rising Fees Mean for Shippers?
Oversize package surcharges and additional handling fees are common targets in contract negotiation. For example, let’s say you ship with FedEx and one of your most popular products measures 55 inches on its longest side.
In 2018, FedEx will bill you for an additional handling surcharge on each of those parcels. If you have robust data about what you ship and how much it costs, you can easily calculate how that change will impact your shipping rates.
Armed with that information, you can ask FedEx to renegotiate your contract to seek a friendlier additional handling surcharge. You may consider shipment orders that contain 55-inch items to UPS, the U.S. Postal Service (USPS) or even a regional carrier.
Shipping software firm Cerasis estimates that regional carriers’ rates can be as much as 40 percent lower than those of FedEx and UPS.
If you decide to renegotiate your contract, consider seeking help from a trusted partner. If your data isn’t yet detailed enough to inform your decisions, Reveel’s expert consultants can help your company start collecting reams of information.
Our team can review your existing contract and highlight additional areas you could target for savings. They can help you prepare for negotiations with your carrier, evaluate the feasibility of a multiple-carrier strategy and research regional options.
Reveel’s team of local experts routinely help clients save as much as 15 percent on shipping contracts. Contact us today to see if we can do the same for you.
The Reveel App uses AI and machine learning to provide an unparalleled look into what’s impacting your bottom line. Through invoice audits, peer benchmarking, and rate modeling/simulations, you can see the health of your operation and assess pricing changes from parcel carriers like FedEx and UPS. Sign up for a free Reveel account today to see how you can leverage automation to synthesize your data, ship more for less, and reduce the time needed to identify issues and action items.